3 Supreme Court rulings you should be aware of if you’re a senior executive

At G. Elías y Muñoz we are labour lawyers specialising in senior executives, and we know that this type of employment relationship can give rise to many doubts and claims that end up before the courts. The Supreme Court has issued three rulings clarifying several important aspects of senior management contracts that may give rise to disputes between the executive and the company.

Am I entitled to compensation for failure to give notice if I am dismissed?

In previous articles we have discussed what happens to the compensation of a senior executive in the event of insolvency proceedings or how that compensation is calculated, but there is another important element affecting the compensation received by a senior executive: according to the specific regulations governing this type of relationship:

The employer must give the executive written notice of at least three months of its intention to terminate the contract. The period is extended to 6 months if agreed in writing in open-ended contracts or those lasting more than 5 years. If the employer fails to comply with this notice period, it must compensate the senior executive with the salary not received due to the failure to give such notice.

For example, a company dismisses a managing director who has an open-ended senior management contract that provides for a 6-month notice period in the event of termination by the employer.

The executive receives a monthly salary of €15,000. The company gives notice of termination 2 months in advance, i.e. it fails to comply with the 6-month notice period. Therefore, the company must pay the salary corresponding to the 4 months not complied with: €60,000.

In the case analysed by the Supreme Court (SC), an executive is dismissed and the dismissal is declared unfair. The SC examines whether, in this case, there is a right to receive separate compensation for failure to give notice, given that there is clear regulation of this notice period in the contract.

The SC considers that there is indeed a right to such compensation because the dismissal is unfair and the employer chooses not to reinstate the employee, meaning the contract is terminated at its will and it must pay compensation for failure to give notice.

Therefore, in these cases, compensation for unfair dismissal is added to the compensation for failure to give notice.

Am I a senior executive in my company or not?

Not all directors, managers or heads within a company are considered senior management staff under the legal definition and, therefore, not all are subject to the specific regulations applicable to this type of personnel.

In its judgment 742/2023, the SC defines the characteristics of a senior management contract:

• A senior executive exercises powers that belong to the company.
• These powers relate to the entire activity of the company or to important parts of it.
• The senior executive makes decisions autonomously.

Therefore, it is considered that there is no senior management employment relationship when managerial functions are carried out by delegation.

For clarity, this is the definition provided by law for senior management staff:

Senior management staff are those employees who exercise powers inherent to the legal ownership of the company, relating to its general objectives, with autonomy and full responsibility, limited only by the criteria and direct instructions issued by the person or higher governing and administrative bodies of the entity that hold such ownership.

In the case analysed by the SC, the court concluded that the employment relationship was not one of senior management because it did not meet the characteristics established by law.

As a senior executive, can I work remotely outside my usual place of residence?

According to the remote working legislation, the employee’s work is carried out from their home or from a place of their choosing. It is usual for this place to be specified in the employment contract.

In a case analysed by the SC, a senior executive was allowed to work remotely during the summer months and at Christmas from a place other than their usual residence. Employees subject to the company’s collective agreement were not allowed to do the same, and the trade unions considered this to be discriminatory treatment. The SC held that senior management contracts are governed by different regulations and therefore fall outside collective agreements and the regulation of the Workers’ Statute, and may have a different remote working regime.

Can a senior management contract provide that no compensation is payable upon termination by the employer?

The answer is no, according to a 2014 SC ruling, since it considers that a senior executive is entitled to the compensation agreed in the contract if the employer terminates it, and if nothing has been agreed, the compensation provided for in the senior management contract regulations applies, which establishes an amount of 7 days’ pay per year of service. The parties to this type of contract have considerable freedom to agree terms, but not to eliminate compensation entirely in favour of the executive.

The SC considers that in this type of contract, based on mutual trust, the contract may be terminated without stating any specific cause, but it is not permissible to agree that no compensation will apply.

In short, we must not forget that a special senior management employment relationship has specific characteristics that must be taken into account when assessing various situations such as dismissal, the contract itself, compensation, or the way work is organised.

If you are a senior executive and have doubts about your situation, contact our team of lawyers specialising in senior management contracts and we will assist you by analysing your contract, answering your questions and making claims against the company that hired you if necessary.